Buoyant GST revenue can stave off direct tax hike

Individuals paying direct taxes may be groaning over the absence of reductions or alteration of slabs in Budget 2018-19, but the Goods and Services Tax may well have already come to their rescue. What is more, if the GST proves to be “a bouyant source of revenue”, chances are that government may not increase the burden of those paying direct taxes.

Chief Economic Advisor Arvind Subramanian suggested in the Economic Survey 2017-18 that, greater the share of direct taxes in the government's revenue, the greater the development. “Advanced countries collect a substantially higher proportion of their taxes as direct taxes than emerging markets do... India has the lowest share of direct taxes in total taxes. India is not an outlier, its direct tax share is similar to other countries at a comparable stage of development,” he explained, adding, “however, unlike in other countries, its reliance on direct taxes seems to be declining, a trend that will be intensified if the Goods and Services Tax proves to be a buoyant source of revenue.”

Senior BJP leader Subramaniam Swamy had mooted the idea of abolishing income tax, and instead taxing expenditure or consumption, an idea that does not find many takers. Yet, the success of GST adding to the government's revenue, may augur well for individuals paying direct taxes as well.

The possibility sounds real to some in the financial services sector. P.A. Sivam, manager of a private venture capital fund says, “Consider this – the priority sectors of agriculture and rural development are a bottomless pit when it comes to funds requirement for development. The infrastructure sector, while being capable of providing jobs, also needs enormous investments. All in all, the need for additional revenue, in order to contain the fiscal deficit, is huge. While political considerations do come into play while playing with income tax slabs and rates, the GST does appear to have played a role, or promised to play a role.”

In the first Economic Survey, Subramanian had also pointed out that many subsidies were being availed by the well off. But these have been brought down if not abolished, thanks to the direct benefit transfer (DBT) driven by technology. But did the CEA suggest a higher rate of income tax?

While that is not clear, he has pointed out in the survey that the payment of direct taxes by people adds to the government being accountable to citizens.